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Delegation and Efficiency in a Mixed Oligopoly

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  • Fatima Barros

Abstract

The present work analyses the effect of delegation on the market outcome when agents have private information about the firms' productivity. Two types of firms are considered: managerial firms (delegation) and entrepreneurial firms (no delegation). Due to the asymmetry of information managerial firms are less efficient (productive efficiency) because they must pay informational rents to their managers. The existence of delegating firms leads the market outcome further away from the competitive one. However the presence of non-delegating firms limits the agents' informational rents. We show that there is an improvement in terms of allocative efficiency in the market when one of the managerial firms is a non-profit maximizer. However this improvement has a negative counterpart in terms of productive efficiency: firstly, the welfare maximizing firm leads to an increase of the average cost of each unit of output, due to the large inequality between firms' production and to increasing marginal costs; secondly, the public firm bears a larger informational rent than private firms. The public firm is welfare improving mainly when the number of competing firms is small and/or the proportion of managerial firms is large. In certain cases the entrepreneurial firms substitute the role of the public firm as a regulation mechanism.

Suggested Citation

  • Fatima Barros, 1994. "Delegation and Efficiency in a Mixed Oligopoly," Annals of Economics and Statistics, GENES, issue 33, pages 51-72.
    • Handle: RePEc:adr:anecst:y:1994:i:33:p:51-72
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    Cited by:

    1. Philippe De Donder, 2005. "L'entreprise publique en concurrence : les oligopoles mixtes," Revue Française d'Économie, Programme National Persée, vol. 20(2), pages 11-50.
    2. Arghya Ghosh & Partha Sen, 2012. "Privatization in a Small Open Economy with Imperfect Competition," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 14(3), pages 441-471, June.
    3. Arup Bose & Debashis Pal & David E. M. Sappington, 2014. "The impact of public ownership in the lending sector," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 47(4), pages 1282-1311, November.
    4. White, Mark D., 2001. "Managerial incentives and the decision to hire managers in markets with public and private firms," European Journal of Political Economy, Elsevier, vol. 17(4), pages 877-896, November.
    5. White, Mark D., 2002. "Political manipulation of a public firm's objective function," Journal of Economic Behavior & Organization, Elsevier, vol. 49(4), pages 487-499, December.
    6. Barros, Fatima, 1995. "Incentive schemes as strategic variables: An application to a mixed duopoly," International Journal of Industrial Organization, Elsevier, vol. 13(3), pages 373-386, September.
    7. Rob Aalbers & Victoria Shestalova & Sander Onderstal, 2004. "Better safe than sorry? Reliability policy in network industries," CPB Document 73, CPB Netherlands Bureau for Economic Policy Analysis.

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